Sajith Premadasa goes beyond formula on fuel price reductions

Fact Check

In his statement former Leader of the Opposition Sajith Premadasa claimed that—based on the reduction in fuel prices in the global market—domestic fuel prices could be reduced too. He also asserted exact new prices for variants of petrol, diesel, kerosene and liquid petroleum gas.

FactCheck evaluated this claim in relation to the fuel price formula implemented by the former government. This decision was taken on the basis that—although he did not mention the methodology he used to derive the fuel prices quoted in his speech—Premadasa had recently advocated for fuel price reductions based on the aforementioned formula on 20 February 2020.

The former government never publicly revealed the complete fuel pricing formula it used. However, the Ministry of Finance (MoF) provided aggregate values that emerged from the formula in two press releases. Using these and other data published by the Central Bank of Sri Lanka (CBSL) FactCheck reverse-engineered the calculation to estimate the values of the remaining variables (Exhibit 1).

As the data available was limited to 92 Octane Petrol and Auto Diesel FactCheck limited its evaluation to these products.

On 10 March 2020 the Singapore Platts price was USD 42.50 per barrel of petrol and USD 44.17 per barrel of diesel and the exchange rate was 181.83 LKR per USD. Using these figures as inputs, FactCheck estimated the formula price per litre of petrol to be LKR 105 and the MRP per litre of diesel to be LKR 71. A 3 % margin of error from the above estimates could be considered as leeway, since the complete fuel pricing formula was not used in this calculation. Even with the error margin the lowest estimated price is LKR 102 for petrol and LKR 68 for diesel, which are significantly higher than the prices asserted by Premadasa.

However, in addition to reductions in line with the price formula fuel prices could also be reduced by reducing government taxes on fuel (primarily customs duty and excise). The prices asserted by Premadasa could have been achieved with an additional tax reduction of LKR 25 for petrol and LKR 10 for diesel. Even though the prices asserted by Premadasa for Sri Lanka were achievable, they were not the prices that would result simply from the current fuel price formula being applied to the drop in world prices of fuel, as suggested by the context of the statement.

Therefore, we classify this statement as PARTLY TRUE.

Exhibit 1: Fuel price formula and assumptions used 

Exhibit 2: Breakdown of Fuel Price Formula with prices from 10 March 2020